GDP vs. GNP

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Transcript of GDP vs. GNP

GDP and GNPThe Gross Domestic Product is the totalvalue of all of the goods and services produced within a country in a year.Textbook DefinitionIn My Own WordsWithin a country, the entire amount of all Goods and Services that are sold annually (i.e. per year).

Goods refer to the products in a country such as cars, computers, and books ;basically any objects sold.

Services refer to activities that are preformed in the country such as restaurant services, maid services, bank tellers, and mechanic work; basically any skills that are performed.Statistic for Canada1.57 Trillion US dollarsStatistics for other CountriesMexico 1.09 Trillion US dollarsUSA 17.3 Trillion US dollarsChina 10.3 Trillion US dollarsQuality of LifeGDP = not really a great indicator of quality of life.

- the populations of countries are different from one another.

While it is possible to compare countries in this way there are flaws:

Example China has a population of 1.3 billion and itsGDP is 10.3 Trillion US dollars

The USA has a population of 307 million (lower than China) yet its GDP is 17.3 Trillion (higher thanChina)

Problem: Vague- the countries are not comparable;- the comparison is not specific.- More calculation is needed to compare the two countries- No specific results (for example a statistic comes from this comparison)

Problem: Accuracy of the Statistic- There are so many different goods and services that there could be substantial flaws in the gathering of information from one country to another.

Knowing the GDP is useful in other ways but on itsown it is not a reliable indicator of the quality of lifein a country.

On the other hand

GDP per capita (population) can be useful as it would show per person in a country which then could be compared to other countries.Textbook DefinitionGross National Product is the sum of all the economic activities of the citizens of a country in a year regardless of where the money was earned.In My Own WordsIn My Own WordsWithin and from Without a country, the entire amount of all Goods and Services that are sold annually (i.e. per year).

Goods refer to the products from that country's companies such as cars, computers, and books ;basically any objects sold that were from country's companies.

Services refer to activities that are preformed in and outside the country such as restaurant services, maid services, bank tellers, and mechanic work; basically any skills that are performed by a country'spopulation.Statistic for Canada1.1 Trillion US dollarsStatistics for other CountriesMexico 1.09 Trillion US dollarsUSA 12.9 Trillion US dollarsChina 7.96 Trillion US dollarsUnfortunately GNP is not really a great indicator of quality of life. This is for similar reasons to GDP that is to say because the populations of countries are different from one another.Problem: Vague- the countries are not comparable;- the comparison is not specific.- More calculation is needed to compare the two countries- No specific results (for example a statistic comes from this comparison)

Problem: Accuracy of the Statistic- There are so many different goods and services that there could be substantial flaws in the gathering of information from one country to another.

Knowing the GNP is useful in other ways but on itsown it is not a reliable indicator of the quality of lifein a country.

On the other hand GNP per capita (population) can be useful as it would show per person in a country which then could be compared to other countries.GDP VS. GNP

The Questions"Mr. Ralph what is the difference between the two?""Well kiddies, GDP is about what is produced and the services in a countrywhile GNP is within the country but also in the world itself!""But Sir, that doesn't make sense; shouldn't Canada's GNP be higher than Canada's GDP since it is from the world and not just in the country?""My My, you little ones are so perceptive. I am glad you noticed this. The best way to explain is with an example.

For some countries, the GNP is lower than the GDP this is true and here is a simplified example of why. For example if a Nissan Car is sold in Canada it countstowards the GDP but does not count for GNP as the Car is owned by a Japanese company as such it counts for Japan's GNP not Canada's GNP.

You can't compare them as they derive their statistics in different ways."Oh wise one, will we have to know all of this for a test?"Oh young learners, these two concepts are quite difficult to grasp and you really need to understandeconomics beyond what is expected of you at your youthful and impressionable age. As such, you really only need to understand the definitions for GNP and GDP, and that they are not particularly useful for examining quality of life due to the factors mentioned from before (i.e Vague and Accuracy). Understand though that the statistics are quite useful in other ways just not for determining quality of life.Oh thank you sir; you are absolutely wise beyond your years and we are forever grateful for your teachingsand imparting upon us (who are not as worldly as yourself) the ancient wisdom of the forefathers. We shallspend the remainder of our lives professing our undying love for you and our devotion to your teaching.Umm, you are welcome but that is not really a question!Quality of Life